Tax Refund Anticipation Loans on Their Way Out

David Pitt, AP Personal Finance Writer

DES MOINES, Iowa (AP) — Technology has transformed how we file taxes. It's to the point now that so many returns are filed electronically that the Internal Revenue Service no longer mails out forms.

The movement of taxpayers online also means refunds are frequently received within days instead of weeks.

It's a change that's dealt a serious blow to the tax refund anticipation loan (RAL) industry. For years it's capitalized on the desire of taxpayers to get refund money in their hands fast.

RALs were used by about 5 million taxpayers last year to receive their expected refund in as little as one or two days. Such loans are often sought by low income earners living paycheck to paycheck. Their financial bind means they're often willing to pay high fees to get their money quickly.

Often referred to as "rapid refunds," the loans are provided by tax preparers in partnership with banks, which provide the funding. Applicants essentially borrow the amount of their expected return and repay the loan when the IRS delivers the actual refund.

More than 80% of RAL customers had an annual income of less than $40,000, according to a 2007 government survey. About 37% made less than $15,000.

Refund anticipation loans at their peak generated more than $1 billion for the tax preparers and banks that offered them.
That was in 2002 when 13 million RALs were processed.

The number of loans has plummeted in recent years and industry observers believe RALs likely will be used by about 2 million tax filers this year.

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